How to Qualify for and Get an FHA Loan?
According to the mortgage agency, Freddie Mac, US mortgage rates have slipped to their lowest levels in 2017. There are many good reasons to buy in these economic conditions and a common question that many homebuyers have is how to qualify for and get an FHA loan. This is because many mortgage borrowers choose FHA loans over conventional loans due to the lenient lending standards and low down payment condition. This helps people with a young or uncertain financial history get the house of their dreams and for little money up front. So how do you get one? There are a few hurdles to jump…
Strict conditions, which FHA loan providers never compromise on, are as follows:
- Borrowers with a 680+ credit score are included among excellent credit score holders. Their applications have lesser chances of rejection. The down payment applied on such applications is 3.5%.
- Applications of borrowers with a credit score less than 580 may be approved if the borrower pays 10% down payment. A lesser credit score just equates to higher risk to the lender, so by asking for a higher down payment it mitigates some of that risk for the company providing you with the loan. Remember, FHA loans are privately issued and publicly insured.
- The payment of closing costs is made either by the borrower or by the lender. Higher interest rates are charged if the lender pays the closing costs as new home inducement. The borrower can check the Good Faith Estimate (GFE) to know which option is more suitable to him.
- You must choose an FHA registered lender for getting your FHA loan application approved. But the lenders registered with FHA offer variable interest rates and costs. You must shop around to decide a lender with good interest rates.
- Upfront Premium and Annual Premium: 1.75% of the total cost is paid by the borrower as Upfront Premium. The Annual Premium is paid monthly and depends on the mortgage length.
- 203(k) is a special beneficiary loan for non-constructive repairs. The amount of loan depends on the worth of property after repair.
- A 2-year employment history with the same income or appraisal is necessary to get your loan approved. You must not have more than two 30-day late payments in the last 2 years.
- FHA loans are not approved for non-private residencies. When you buy a property with a FHA loan, you must reside in it.
- Bankruptcy in the last 2 years and foreclosure in the last 3 years are the conditions due to which most applications are rejected. In such a case, your application will only be approved if you have maintained a 620+ credit score since then.
Although these conditions are strict, getting an advocate’s advice may help you in getting your application approved even if you don’t fit into any of these.
Getting an FHA Loan
- The first step to getting an FHA loan is to make sure that you qualify for the loan approval conditions.
- The second step is to save money for down payment.
- Surf the market and meet up with various FHA approved lenders. Get the rates and compare them later. Selecting a good lender will bring you a million benefits in future.
- The law requires you to protect the lender with mortgage insurance as you are paying <5% down payment which puts the lender at risk. For help in mortgage insurance, you may talk to the lender.
- Ask a legal advisor about the documents you will need for your case. Be prepared with all the necessary documents.
- Complete your FHA loan application under the guidance of the advisor.
- Inspect the property for qualification to the FHA property qualification conditions. You will not get the loan if the property does not adhere to FHA property guidelines, even if your application is approved.
- Compare mortgage rates and check if you can afford them.
- Sign the closing papers.